It wasn’t long ago that grocery retailers profited by offering only major brands of ground coffee to their customers. But with the advent of the baby boomers’ and X-generation’s unrelenting zest for espresso bars and gourmet coffees, store purchasing managers had to start stocking coffee in whole-bean form to meet the increasing demand for freshly-ground varietals and blends. Conglomerates like Proctor and Gamble, Sara Lee, Kraft, and Nestlé – ordinarily not accustomed to filling niche markets of goods that required excess handling, such as whole-bean coffee – were forced into unfamiliar territory in order to meet this new demand. Would they succeed?

The verdict appears to be coming in, and with Nestlé’s recent pullback from supplying whole bean specialty coffee to major supermarket chains, the answer waxes toward “no.”

Specifically, Nestlé will no longer ship whole bean coffee in consumer-sized bags (12 oz., for example) to approximately 1,500 supermarkets such as Albertson’s and Ralphs in the mid-west and on the West Coast. Instead, Nestlé plans to focus on its core competency of delivering packaged goods by the boxcar load. As proof, Nestlé recently announced a $60 million campaign to raise awareness of its Nescafe* brand, which includes instant coffee in glass jars and flavored coffees in convenient foil packages, several to a box.

Of course, as any physicist will attest, nature abhors a vacuum. The same holds true for consumer markets. No surprise then, that this marketing void is rapidly being filled by smaller, you might say “boutique,” companies that only deal in specialty coffees. Premier among them – if only because it has single-handedly managed to dominate the shelves of Albertson’s and Ralphs that once stocked the Nestlé brand – is White Cloud Coffee of Boise, Idaho.

Founded in 1986 by Jerome Eberharter, White Cloud has blossomed from modest first-year sales of $27,000 to over $4,000,000 in FY2000. Quite a feat considering that White Cloud employs only 23 individuals while Nestlé VA of Vevey, Switzerland boasts a headcount of 17,300 employees worldwide.

So how is it that an upstart “David” managed to wrestle shelf space from a “Goliath” such as Nestlé? And what does this shift bode for the profit-generating potential for selling whole-bean coffee from independent and chain store shelves?

“Handling small amounts of product that must be broken down does not fit the business model of giants such as Proctor and Gamble or Phillip Morris, which owns Kraft,” notes White Cloud’s Eberharter, now the company’s CEO. “These conglomerates profit from packaged goods, where everything is sold by the pallet, truckload or trainload. It goes into the grocery store’s warehouse and is distributed by that grocery store chain – already packaged to be placed directly onto the shelf.”

Eberharter went on to point out that his company utilizes distributors, and occasionally resorts to direct store delivery, to supply five-pound bags of roasted whole beans to individual supermarkets. Once there, they or the distributor must cut open the bags; take the roasted coffee beans out; and put them into the display dispensers so that the supermarket customer can choose the type and quantity of coffee that he or she wants.

“Our pipeline to the customer tends to be much more labor intensive, as we must break the product down in the store,” comments Eberharter. “Yet, this effort pays off because coffee consumers tend to be far more discerning these days. They know their quality, and this recognition of quality pays off for store managers at the cash register.”

Evidence of Eberharter’s observations are borne out by the sales figures. “In the same stores, our sales were five to seven times greater than Nestlé’s were – even when they dropped their price to $3.99 per pound and ours stayed at $6.99,” says Eberharter.

Yet, quality alone does not quite account for the entire successful saga of companies like White Cloud. Consider that White Cloud also offers gift packs, home grinders, mugs, filters and even chocolate-covered coffee beans, and you get the picture of a carefully crafted marketing campaign that helps supermarkets profit from far more than just selling coffee.

The shear variety that clearly-focused specialty coffee providers bring to supermarket shelves also helps stores boost sales. Note that White Cloud offers exotic coffees ranging from light roasts such as Aztec Gold, Colombia Supremo, Ethiopian Harrar and Buckaroo Blend, to dark roast delicacies like Espresso Dynamo, Hawaiian Dark, Sumatra Dark, and River Runner Blend. Covering all tastes, specialties such as decaffeinated, organic, and even flavored coffees – Amaretto, Chocolate Raspberry, Kalossal Fudge, Spiced Butter Rum, and French Carmel Creme – further increase the odds that almost all customers will find something to enjoy, and then ultimately make a purchase.

“We realize that profit margins are becoming increasingly tighter in the supermarket and convenience store industries, admits Eberharter. “Yet, the fact that a tasty cup of coffee is viewed as an up-scale, yet affordable, luxury accounts for part of our sales success in the face of a slowing economy. By offering a wide variety of gourmet coffee, customers are even more inclined to find something to take home and indulge themselves with.”

According to the Specialty Coffee Association, the gourmet coffee market currently enjoys double-digit growth rates that other sources place as high as 30%. In 1999, over 1.7 billion pounds of coffee was sold in the U.S. In light of such all-the-tea-in-China volumes, any grocery-store or supermarket manager can appreciate the opportunity that selling specialty coffee presents.

Taking all of the above into account, it seems that it doesn’t require the prescience of a gypsy fortuneteller reading tea leaves in the bottom of a cup to foresee the direction of the current shift in whole-bean coffee sales. With small, fleet-of-foot companies like White Cloud bringing the best specialty coffee that Central America, Africa and Indonesia has to offer onto the shelves of supermarkets here in the U.S., store owners stand to profit from aligning with the “little guy” for a change.